Will Indy homeowners abandon their mortgages?

July 21, 2010
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Reports filtering out of other states have people with underwater mortgages handing the keys back to the bank. These aren’t folks who lost jobs or their health and can no longer make the payments; they can afford the payments.

Rather, they’ve decided the values of their houses have fallen so far that it no longer makes economic sense to keep paying off the mortgage. So they’re walking away.

The so-called strategic defaults are most common in markets where the housing boom was hottest—California, Florida, Nevada—although the once-unheard of phenomena is emerging in other places, too.

Jim Litten, president of F.C. Tucker Co., one of Indiana’s largest residential real estate brokerages, has yet to hear of a strategic default in the Indianapolis area, but he doubts it would become a big trend here. House values didn’t boom and then bust here to the extent they did in the most overheated markets. So there’s less economic incentive to look beyond ruining a credit score and quit.

Asked what he thinks of the trend, he laughs ruefully. People wouldn’t pull stunts like this on a stockbroker if a stock went south, he says, so why should they do it to a lender? After all, the homeowners signed a paper saying they would pay back the loan.

“There’s been a shift in values,” Litten says. “If they have the ability to pay, I don’t think that’s the right way out.”

What are your thoughts?

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  • Root Cause
    What does society expect? From a legal perspective, Indiana (and other preferred securities holders) suffered losses (seizures of property in violation of the Constitution) when GM and Chrysler declared bankruptcy, but the legal requirement to pay these preferred holders in full before paying other creditors was ignored, first by the government and then by the "justice" system. The Constitution has arguably been ignored in order to give us mandated health care, which we are told if we do not pay into, we will have our property seized through fines. Arizona is chastised and sued for having the audacity to want to enforce existing laws and secure for its citizens the blessings of being one of its citizens... it goes on and on...

    And now someone actually thinks that a private individual who made a promise to pay back a loan on a house, in which the house (and only the house) was offered as security against the loan, should continue to pay based on absolutely no legal obligation but only on some banker's sense of moral equity???

    If governments get to ignore written laws that specifically require explicit actions, how on earth do you justify compelling a homeowner, lucky enough to still be employed, to pay his or her loan on a house that the same government and beaurocrats have caused to be devalued to a fraction of the loan value?

    If government and big bailed-out banks want to express some moral outrage, they ought to try demonstrating that they have the faintest inkling of what a moral is or that they would even recognize one.
  • It's just business
    I don't like the idea of strategic default on a loan, but I can see why some would do it. People are just acting as a business would in the same circumstance - if it makes financial sense to walk away, then why not? it's certainly not illegal.
  • Stimulus Money
    Maybe take the millions earmarked in stimulus money for repairs to seldom used private airports and give that to homeowners to pay down their loans.
  • Root Cause Rick is Right
    As he points out, "If the government can ignore written laws, how on earth do you justify compelling a homeowner to pay based on absolutely no legal obligation but only on some banker's sense of moral equity?"
    What is good for the goose is good for the gander.
  • Re Build Indy
    The Government and beaurocrats have caused our properties to be devalued to a fraction of the loan value by jacking us with more smart growth delays, out growth spending, creating bigger gov. with less people to pay for more. We now need for our gov. leaders to be smart and swift, reinvesting back into where the people are living, the center of the preferred quarter, the core economic generators, Midtown to Downtown. Rebuild Indy! Stop filibustering with more talk about the effects from the lack of addressing the real issue. We need the dollars spent with focused actions, creating Mixed Use redevelopment and opportunities along our corridors, the foundations of our neighborhoods.
  • Doing the right thing?
    I thought I was doing the "right thing" by doing everything I could to honor the mortgage contract on my home. My home had an appraisal of $830,000 in 2000. My mortgage was for $400,000 and I had a second for $200,000. I had never missed a payment and my credit score was in the high 800's. I listed my house for $750,000 and dropped it $25,000 every month or two. I spent my entire retirement, against my lawyer's advice, because I thought it was the "right thing" to do. My house is now in foreclosure and now am asking $475,000. I have a judgement against me for any shortage. So, I do not beleive you can simply hand the keys to the bank and walk away.
  • Yes, you can
    You can hand in the keys and walk away. However in addition to a damaged credit score, there are legal and tax consequences related to that debt. The mortgage holder can take legal action against you to recover payment. Also, the strategic default homeowner may have to report any forgiven debt to the IRS as taxable income. Seek some legal and tax advice first.

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